 Hello, everybody. Lee Lowell here, smartoptionsower.com. Welcome. Today is Saturday, January 16, 2021. Today we are going to be talking about one of the great and fabulous option trading strategies called selling put option credit spreads. Been getting lots of questions once again about how to sell put option credit spreads. I know I did a video about this sometime in early December, but yet we still have more questions wanting to know more about how to do it. Why is it such a great strategy? I want to make money selling put options and put option credit spreads. So, fill me in. Getting lots of requests on filming a video on selling put option credit spreads is a great strategy. It's one of the four strategies that I talk about in my book. It's one of the newsletters that we run about selling put option credit spreads. Today's video is all about how to do it, why to do it, and what are the benefits of it and risk rewards and all of that. So, sit back, relax. We're going to talk all about selling put option credit spreads. And as we always do on Saturday, we will do our Saturday synopsis afterwards. We will talk about the charts, look at the charts, see where the market's been, look at individual stocks, and see what is going to happen possibly for the next week and beyond that. So, sit back, relax, and let's jump right into it. Today, we were talking about selling put option credit spreads. Let's bring up our cheat sheet as we always do. This gives you a good idea of what it's all about and why we do it. And you can always revert back to this when you rewatch the video. So, selling put option credit spreads, what's it all about? Why do we do it and why is it so beneficial? Well, if you want to take a position in the market, most people either A, they just will buy a stock or they can buy call options or they can sell put options. But another way to take advantage of a neutral to bullish direction is by selling put option credit spreads. And it's a great way to take advantage of a neutral to bullish direction that you may have an opinion on a stock. So, let's go through our list here and talk about, first of all, what are the benefits of selling put option credit spreads? And number one, limited risk. Okay, you're not setting yourself up for open-ended risk. Okay, that's something that you never want to do in the market. So, a spread, an option spread has limited risk. And the second big benefit is that it has less margin requirement compared to selling single options, which is great for smaller accounts. You have a smaller account and you don't have a lot of cash to play with. Selling put options limits the amount that you have to put up for the trade. So, let's back up here and talk about when you sell an option or when you sell an option spread, your broker is going to assess what's called a margin requirement. And that's just a fancy term for saying you have to put some skin in the game. You have to put some money up as collateral to execute the trade. Now, this is not the same as something that's called buying on margin. When you're buying on margin, what you're actually doing is you're borrowing money from your broker to buy shares of stock and they charge you interest. That is not what the margin requirement is. The margin requirement is just funds that you already have in your account that have to be held aside during the life of the trade. And a margin requirement on a single option, if you sell a single option, whether that's a call option or put option, the margin requirement can fluctuate and it can go up over time and it could take more of your free funds. That's not what happens when you sell an option spread. When you sell an option spread, your margin requirement is fixed over the life of the trade. So you never have to worry about a fluctuating margin and taking up more of your free cash and you'll never get the dreaded margin call unless you just sell too many spreads and your margin requirement is more than the cash that you have in your account. But the margin requirement itself will never change or will never fluctuate on you. So the two great benefits of selling put option credit spreads is that it's a limited risk. You'll always know how much money you have at risk ahead of time. So you can always plan out your trades and you'll have a smaller margin requirement compared to when you sell single put options or any option itself. So when do you use a put option credit spread? Well, like I said, it's used when you are neutral to bullish on a stock. And the great thing about selling put options is that you can make money in all different directions of the stock. If the stock stays flat, you'll make money by selling spreads. If the stock goes up, you'll make money by selling spreads. And even if the stock goes down, you can still make money on the spread. The only thing that you have to worry about is if the stock goes down a significant amount. So what you're going to do to mitigate that is you're going to pick stocks that have nice upwards momentum that are moving higher. So that limits your chance of the stock going down significantly. And also as we do in our smart option seller newsletters is that we don't really want to take positions when an earnings announcement is coming up. Okay. So that's one thing you need to stay away from because you never know what's going to happen during an earnings announcement. A stock could drop on you. So you don't want that. So we stay away from that. So you can use it. The best way to benefit by selling a put option is when you think the stock is going to go up or at least stay neutral. Okay. So that you will be able to profit quicker. And when do you enter? I get lots of questions on when do you actually enter the trade? When is the best time to enter a trade? And I'll probably make a video in the future about timing trades, how to time a trade. But the way we do it is that we wait for a pullback on a stock that we like that already has the upward momentum. But we wait for a pullback in that stock to a support area or a moving average that we track. And I'll always show the charts here. We look at the 20 day and 50 day moving averages. And those are always great areas of support. And I'll show you on the chart. So we wait for a pullback and then a bounce off of those support areas. And that's one of the greatest times that you can enter into a into a bullish trade on a stock. And, you know, the risk rewards for selling put options that I'm going to go over an example, I'm going to show you an example that we just did in our newsletter on Chewy. Chewy is the pet, the online pet supplier of all kinds of pet products. And we profited on this trade in eight days time. So it was a great trade for us. And I'll show you exactly what we did. So the risk and rewards are right here is where we are on our cheat sheet here. The reward, when you sell it a spread or you sell a single option contract, the reward, your maximum reward is always the amount of the initial premium that you receive. Now remember, when you sell an option, you get money for that option. And that money goes into your account right away when you sell it. But that is the maximum amount of profit that you can ever make in a trade if you sell an option. And the risk in the case of option spreads is limited, like I told you, but the risk itself, the maximum risk is the spread, the spread width of the strikes because you're using two different options. So you have to take the difference between those strike prices and then you minus the premium that you received. And I'll go over that, I'll show you how we do that. Break-even levels, of course, you've got two strike prices in the spread. You've got a strike that you're selling and a strike that you're buying. A spread always consists of an option that is purchased and an option that is sold. So the width between those strike prices, whether it's a $10 wide strike difference, a $5 wide, you have to take that with amount and then subtract the premium that you received. And that'll give you the maximum risk in the trade. And I'm sorry, the break-even levels, we were here at the break-even levels. You take your short strike and you take away your premium that you received and that'll give you your break-even level of the stock price itself. So I know I'm going over these things before we actually look at a chart, look at the numbers and I'll show you exactly what we did. But once again, selling put option credit spreads, it's a great strategy for smaller accounts. You'll have a minimum, a limited risk and a fixed margin requirement, which is a great thing for these smaller accounts. So let's go to the charts. Let's take a look at the Chewy trade that we did and I'll show you exactly the numbers and I'll show you why it worked out so quickly. So let's pull up Chewy. Let's pull up Chewy and here's the stock chart of Chewy. This is a daily chart of Chewy. Each one of these bars consists of one day's worth of trading. And so we get a look here. Now, what do I look for in the charts when I'm trying to make a bullish trade or a neutral trade? Well, number one, we always want to see a stock moving higher. We always want to have good momentum and I'll stretch this down so you can see it. So you can see Chewy's had, here's the pandemic back in March 2020. And it's just had this beautiful run higher. It has this nice momentum behind it, always bouncing off the 20 day or the 50 day moving average. We got the blue line is the 20 day, red line is the 50 day. So you have a nice chart that just keeps bouncing off either one. Okay. So here's what we did on Chewy the other day. We wanted to enter into a bullish put option credit spread that will make us money if the stock continues to go up or even move sideways. You can make money if a stock goes nowhere by selling options. Now, if you buy options, you can't make money if the stock goes sideways. That's why we don't like to buy options because a lot of times the stocks don't really go anywhere. So we like to take advantage of what's called time decay. When you sell options, those option prices start to decline because the stock's not going anywhere. And that's great for an option sell. You know why? Because you can end up buying that option back at a cheaper price and lock in your profit. So what we did on Chewy is we saw the stock had this nice push higher. Okay. But we always want to wait for a pullback to a good support level. Now, knowing that Chewy was bouncing off the 20-day or 50-day moving average, I started looking at Chewy when I was up here thinking, okay, the next time Chewy pulls back, I'm going to want to get into the trade because it has this great momentum behind it. So it started to pull back right to the 20-day moving average right here. And I started to wait for it to bounce again. Like it could have kept going down to the 50-day moving average, but it was such a strong stock that it found its footing, it found its bottom right around here. Okay. And it started to bounce again. So I knew that, okay, Chewy's bouncing off the 20-day moving average, it most likely, not a guarantee, but it most likely will bounce and continue to move higher. So what we did was, and I will bring up the email, this is an email that my readers get, my newsletter readers get vertical spread trader on January 6th, 2021, new trade on Chewy. So what we did was, we sold the Chewy February 19, 2021, the 70-65 put option credit spread. And we tried to sell it for a limit sell price of 35 cents per spread. So what does that mean exactly? Well, in the trade, like I said, there's always two options, one that you sell, one that you buy. And in an option credit spread, you're always going to sell the higher, more expensive option strike, and you're going to purchase the lower, less expensive option strike. Now what that does, that helps lock in a limited risk, yet a limited reward. Now if you sell a single put option, you have an unlimited risk to the stock falling to $0. Okay, but with a spread, you're limiting your risk in the trade. So you'll sell the more expensive higher strike, and you'll buy the lower, less expensive strike price as a spread. You do them at the same time. You sell one by the other, all in a single transaction. And we try to collect at least 35 cents per spread. So knowing that Chewy, here's our, here's our prices, 70 and 65. Those are the strike prices. Let's go back to the chart and see, and this was on, let's just show everyone January 6. So we go back to the chart, we look at Chewy, January 6 was right, this bar right here, right on the 20 day moving average. On January 6, we got in, because we were thinking Chewy was going to move higher. So what did we do? We sold the $70 put option, and we purchased the $65 put option as protection. Now where are those? Those strikes are all the way down here. At the time of the trade, Chewy was roughly, you know, 90, 94-ish dollars. Okay, right here on January 6, about $94. And what we do is we sell out of the money, put option credit spreads. What does that mean? Well, we choose strike prices that are far away and below the current price of Chewy. So here's $70 and $65 is right in here. So we sold the 70 put and we purchased the 65 put as a spread and we collected $0.38 per spread. We actually did better than what we wanted to. We wanted to sell it for $0.35. We actually sold it for $0.38. And Chewy's up at $94, which means we have a nice $24 cushion from our strike price that we sold. So we're thinking, even though we think Chewy's moving up, we still want to protect ourselves by selling an out-of-the-money spread. And the $70 put is basically our line in the sand. We do not want Chewy to fall all the way down to $70. That's our danger zone. We don't want Chewy to fall to $70. Even though we have the $65 as protection, the way to win is for the stock to not fall down to the strike price. So we're thinking, okay, we got $24 of protection of buffer, downside buffer from the current price of Chewy all the way down here. As long as Chewy doesn't fall that far, we will make the money on the trade. The maximum risk, I mean, I'm sorry, the maximum reward is our $0.38 per spread, which is actually $38. With the option multiplier of 100 shares, whatever you sell the spread for, you have to multiply by 100. So we sold it for $0.38. That's actually $38 we collected for each spread that was sold. So what happened in this case? Well, January 6, we got into the trade and then Chewy just went on this tear higher, just rocketed higher. And that was great for us, because what happens is when you sell put options or put option spreads, if the stock goes up, the option prices go down. And that's exactly what you want to happen when you are an option seller. When you're an option seller, you sell the option at one price, and you hope to buy the option back at a lower price so you can lock in a gain. Now, when you're an option buyer, you don't want the option price to go down. That means you're losing money. But as an option seller, you want the option price to go down so you can purchase it back at a cheaper price. So what did we do? Well, eight days later, and let me bring up the other email. Eight days later, I sent out my readers an email on January 14, just the other day. It's time to take profits on Chewy, okay? Because Chewy stock started to go up and we want to lock in our gain. How do we lock in our gain? By buying the option back, buying the option spread back at a cheaper price than where we sold it. So the instructions were buy back, all of your Chewy spreads for a limit price of $0.07 per spread, okay? So we originally sold the spread for $0.38. Now we're buying it back for $0.07. That's a $0.31 gain or $31 for every spread that was sold. And we lock in the gain and the trade is over at that point. So let's take a look here. So we got in here, we sold the spread here, Chewy bounced, and we got out on the 14th, which was on Thursday. So right as it was making new highs, we decided to get out. And that's what we did. We were filled on our trade. So we sold it at $38, bought it back at $31, locked in the gain. So that's how we execute put option credit spreads in our newsletter. We wait for stocks that have good momentum, wait for the pullback, and then pull the trigger by selling the spread here, hoping that the stock will go up. Or even if the stock starts to meander, the option spread will still decline in price. And eventually we aim to buy it back. This time, we just got, I'm not going to say it was luck, but Chewy ran up higher. And that was a great thing for us. So we got out in eight days time. Great way to make a trade. Good return. And I'll show you how the returns are calculated. So let's go back to our cheat sheet here. So number one, we had a limited risk trade. We had two strikes. We sold the 70 put and we bought the 65 put. That's $5 in between. That's the width of the spread. $5 wide, 70 minus 65 is $5. And that's one of the numbers that you have to understand when you're trying to figure out what your risk and reward is and your breakeven levels. So let's go down here and we'll type in some more numbers. So we sold the 70 put, sold the 70 put, and purchased the 65 put on Chewy. $5 wide. That's the width. Now, in order to figure out your risk in this case is that you have to subtract the width from the amount of money you collected. So $5 minus $0.38 equals $462 equals the max risk. So yes, you're risking $462 to make $38. And the reason why that seems so lopsided is most people would think, well, don't I want to risk $38 to make $462? If you're buying options, that's what it comes down to. But when you're selling options and you have such a high degree of having a profitable trade, there's the trade off. So in this case, we're risking $462 to make $38. And the reason why it's so unbalanced or some people don't think it's unbalanced, I don't think it's unbalanced because we have such a high probability of this trade working out for us. And I showed you in this scenario, Chewy's all the way at $94. What are the chances of it falling all the way back down to 70 in that short amount of time that we have in the trade? It's not very likely. Now, what we do in the smart, in the vertical spread trader newsletter is that people ask, well, how do you pick the strike prices? Why did you sell the 70 and buy the 65? Why didn't you sell the 80 put and buy the 75 put as protection? How do you choose your strike prices? Well, for us, we're always looking for at least a 20% buffer, 20% cushion from the current stock price to the short strike of the spread. Now, when I say short strike, that means the strike that we've sold, we're shorting the 70 put and we're buying or we're long the 65 put. So we always want the cushion from the current stock price to the short strike to be at least 20% if we can do it. Now, in this case, we had about, you know, $24 or so between the stock price and the strike price. And in this case, when Chewy's at $94, that was over 20%. Now, let me get out my calculator real quick. So if Chewy's at $94, we had a $24 buffer divided by $94. That gave us a 25.5% buffer between the stock price and the strike price that we sold. Why do we choose 20%? Because in the short amount of time that we're in a trade, 20% is a pretty darn big move for a stock to move. A lot of stocks don't move 20% unless there's some major catastrophe, you know, like the pandemic or a bad earnings report, a stock can drop 20%. That's why we don't trade these, make these trades over earnings, because we don't want a bad event like that. So on a normal functioning market, stocks don't typically drop 20%, especially if they have this great momentum behind it. So our goal is to use a strike price, the short strike of the spread, at least 20% below the current price of the stock. That's our protection. That's our buffer. And with the, with a very small chance the stock can fall that far, we have a very high probability of having a profitable trade. That's why the risk reward may seem unbalanced at first. But over time, all the years we've been doing these trades, we come out winning, you know, 95% of the time because the stock's not going to fall that far in most cases. Okay, so they'll, so we're risking 462 to make 38. That's just how it works when you sell options. That's just how it works. But the chance to have a profitable trade is extremely high. So over time, as long as you have, you know, a high probability of winning, your, you know, expected value is going to keep, your expected return is going to keep going up over time. Okay, so once again, we sold the 70 put and purchased the 65 put, that's $5 wide, you take the width of $5 and you subtract your, the premium received, and there's your maximum risk. Okay, the maximum gain is 38. The maximum risk is 462. Now, how do you find out the breakeven? Let's just say Chewie did start to fall. You know, what happens? Where is your, where's your, you know, your point of losing money? Now, let's talk about what happens at expiration and there's a few scenarios that can happen at expiration. The stock stays above the short strike, $70 in this case. If that happens, then you're going to, you're going to have maximum gain. Okay, if Chewie stays above $70, it's currently at 94. So if Chewie stays above $70 in the next month and a half, what, which let's just take, what was the expiration here? February 19th. So just over a month from now, a little over 30 days, as long as Chewie stays above $70, we will have the maximum reward. Now, if Chewie moves below the purchase strike of $65, if Chewie falls below $65, then you will achieve the maximum risk of $462. But that's a big, big drop for Chewie to go on a momentum stock like that. But if Chewie falls below 65, you will achieve the maximum risk. But the way that we run the newsletter, we don't always, we never hold trades to see the maximum risk. We will always get out of a trade before then. Okay, but to figure out where that break even is, we take the short strike, $70 minus the premium received equals $69.62. That is your break even price. If Chewie finishes at $69.62 at expiration, you will completely break even. You won't make any money, you won't lose any money. Okay, so that's what you have to understand. There's a couple numbers involved, a little math involved, but it's very easy to figure out. Number one, you know, you have to know the width of the spread. In this case, it's $5. Okay, so you can figure out your maximum risk, maximum reward. And you also want to figure out the break even. You take the short strike of the spread minus the credit received, here's your break even price. And that's still a far amount for Chewie to fall or any stock that you're using. Okay, so that's all you have to do is figure out those numbers. Now, some people will say, and I talked about this in my prior video I made, I think it was on December 5th, you can go into the archives of my YouTube videos and look at my December 5th videos, pretty similar to this one. But I talk about the break even prices and the max risk, max reward. So you can watch that one as a refresher as well. And so people will say, well, what happens if the stock finishes, let's just say Chewie finishes at $67 per share? Yeah, you're short to $70, you're long to $65. What if Chewie finishes right at $67 at expiration? Well, you want to get out of the trade before then. If you see Chewie moving down or any stock, you're moving lower. If it's breaking through support levels, that's your cue that it's time to get out. People will say, when do you get out of the trade? Number one, I always look at the charts. Okay, let's go back to Chewie. Now, if Chewie started to come off and drop below the 20 and drop below the 50 and started to make a pattern of a down move, well, then I realize, okay, Chewie is probably the momentum has turned. It's moving into a bearish trade now. It's probably time to get out, especially if there's a lot of time that's left before expiration. If we have like a week or two before expiration, it's you have to weigh that, well, what could come first? Can Chewie fall below the strike price? Or will it expire first? So then you start, you know, you're getting to that area where, okay, can I sweat it out? Do I think Chewie's going to fall even further? Or can I hold on till the very end? That's just, you know, a decision that you have to make. In the newsletter, what we do is, number one, I always look at the charts. If I see a turn in the charts, you know, we can get out, but we never hold for full maximum risk. We always hold for at least a two to one or three to one risk to a reward. Now, what does that mean? Well, if we sold the spread for 38 cents per spread, we're willing to risk two times that or three times that depending on where the stock chart is. So in this case, double that amount is 76 cents. Okay, so so if the spread rises 76 cents above this number, so 38 plus 76 equals, sorry, am I typing $1.14? Yeah, is that the number? $1.14. So if the spread widens out to $1.14 per spread, then we look to potentially buy it back. That amount would be double what we sold it for. So if we originally sold it for 38 cents, and now all of a sudden we have to buy it back at $1.14, that means we're going to lock in a 76 cent per spread loss. And that 76 cents is double the amount that we originally took in. That is a two to one risk to reward. Okay, so that's one of our defense mechanisms when we look to purchase back a spread. If it's not going our way, not all trades work out. We all know that. Okay, so one of the defense mechanisms we entail is a two to one risk to reward trade. Now, so if the spread more than doubles or goes up double to $1.14, we may look to buy it back and lock in the loss. That's just how we do it. Some people will, you know, if the stock starts to move below the 50 day moving average, they get out. Wherever the spread is at that time, they get out. That could be less than the two to one, more than the two to one. You won't know until that time occurs because it depends, it also depends on how close you are to expiration. So if there was a month left, left before expiration and chewy move below the 50 day moving average, the spread could be one price. But if it happened a day before expiration, the spread might not have any value left. So you can still buy it back cheaper. So it all depends on where it falls on the expiration scale when the stock starts to move. So you always want to have an exit plan in place. For us, that's, you know, the two to one or three to one or depending on where the stock goes. So the benefits, number one, the benefits outweigh the risk in this case. As long as you pick stocks that have the good momentum, your timing or entry waiting for that bounce, you'll have a limited risk, a limited reward, and you have a smaller margin requirement to get in the trade. So people love doing these trades. And you know why? Because we can do it on extremely expensive stocks. We've sold put spreads on Amazon. Amazon's a $3,100 per share stock, but it doesn't matter as long as the width is $5 wide. It doesn't matter how much the stock trades for because you always know your maximum risk could never be more than the width of the spread minus the premium that you received. So we like to do spreads on stocks that are, you know, $100, $200, $500, even Amazon $3,100 stock, you can trade these very expensive stocks because the spreads have a defined risk of $5 wide, $10 wide, two and a half dollars wide, a dollar wide, you can trade the SPY they have strikes every single dollar. So your, your maximum risk will never be more than a dollar at most. So you have to pick stocks with the width that, that coincides with whatever your risk levels are. Okay. So it's a great trade to be able to, it's a great type of strategy to be able to trade very expensive stocks. You don't want to sell naked put options on very expensive stocks like this, because that's a long way for a stock to fall and it costs and has a very large margin requirement. So we like to do spreads, smaller margin requirement, limited risk, you can play very expensive stocks. So there you go. There's your, you know, your introduction or your assessment on, on how to sell, put option credit threads, why you want to sell them, you know, what are the risks and rewards and, and your breakey even levels. So just remember stick to stocks that are moving up, bouncing off support, and then you can time your entry. And we love it. And we, you know, we, we have these great trades. So there you go. That's your, your lesson today on how to sell, put option credit threads. So now let's move on to our Saturday synopsis. Let's take a look at some charts, see what's happening in the market, and see what may happen for, for next week. Let's take a quick look here. We always open up to the SPY exchange traded fund for the SP500 gives us a good overview of the, the market as a whole. If you've been watching my videos, we know, you know, we always talk about the indexes first, SP500. So where we are last week, we can see once again, 20 day moving average, SPY, SP500 is hugging this line. I've been telling you that I'm, I'm very bullish, bullish on this year. Coronavirus vaccines are rolling out, you know, little trouble getting, getting them out to everybody, but it is happening. It is happening. The market looks ahead to brighter days. So the SPY was making this W pattern, bullish pattern was congesting and then finally started to break out. And then once a stock starts to break out, look for it to continue on hugging either the 20 day or 50 day moving average. Okay. If it starts to break down below both of those for a number of days in a row, it may start to be moving on to the bullish momentum maybe over at that time. But for now, it's hugging this 20 day. We had a very small range this week until yesterday, Friday, January 15, 2021, where it just had a big move down. But look where it bounced right on the 20 day moving average. Let me open this up a little more so you can see, right? It didn't completely touch the 20 day, but it got close. So the SPY, you know, pullbacks are good. We like pullbacks, gives us another chance to get into the trade. And once again, I can't see the market moving anywhere but up at this point, or at least sideways, big moves down. I know there's always people calling for bear markets. Well, when's the next bear? What if the next bear market happens? Well, what if we get a sell off? Okay, what if we get a sell off? Well, there's your opportunity to get in. The market goes up over time. It is undeniable. Here's your long term chart of the S&P 500 index. Financial crisis 2008-2009, it's gone nowhere but up. Yep, we had the pandemic here in March, was a great opportunity to get in. Yes, it scared everybody. But the world didn't end. The market didn't go away. So once again, we look for pullbacks as buying opportunities. So market's going up. Let's take a look at the Dow Jones Industrial. Take a look here. Open it up a little bit. Once again, 20-day moving average. Didn't hit it, but it bounced, had the low of the day, didn't finish on the low, started move back up during the day. You can see the little dash mark on the right side of the bar, that's where the index closed for the day. And hugging the 20-day moving average had somewhat of a W pattern, moved above resistance, and now it's going up. There's no other place to get a decent return on your money. The stock market is where it's at. That's just how it works. I know the economy, a lot of economies around the world are not doing great, but the stock market is doing great. It seems unfair that we can have that dichotomy between economy and stock market. But don't deny it. It's there. It's happening. Let's take advantage of it. So that's what we do. The NASDAQ, same thing, moving up, hugging the 20-day moving average. I'll open it up here a little bit. 20-day moving average. Yes, some people will say, well, I don't want to get in on the highs. It's making all-time new highs. I want to wait for a pullback. It's too expensive. There's no way it could keep going up. Well, I mean, you could have said that here. You could have said that here. You could have said that here. The market keeps going up. Here's where you could have gotten in on a pullback. It went through the 20-day, went through the 50-day, and then it started to congest here, and it went back up. Another pullback for you went back up. So I don't think there's a problem with buying on the high. Yes, some people say, I don't want to buy it when it's the most expensive it's ever been. Well, in that case, wait for a pullback. Wait for a pullback to the 20-day, 50-day, if it ever pulls back. Your best bet here is if you want to wait, then you just have to be patient and wait for a pullback. Let's see what else we have. We haven't looked at the VIX recently. I've been forgetting to look at the VIX. The VIX is the volatility indicator. Volatility is just kind of flatlining here, and volatility is cheap, which means option prices are cheaper. Volatility has an effect on an options price, and when volatility is cheaper, option prices are cheaper. Now, when volatility was spiking back in March, option prices were more expensive. But now you can see the volatility moves inversely to the general market direction. So since the market's been going up, volatility goes down. Let's take a look at some individual charts and see what we have moving forward. We always take a look at some of the popular stocks. We have Apple. Apple had finally moved out of the congestion triangle, moved to the upside, was hugging the 20-day moving average, and now it's kind of trading little sideways here. It has moved below the 20-day moving average. So we may see a connection with the uprising, rising 50-day moving average. So let's see what happens for Apple. Now, one thing I've always talked about is you want to see up-moving moving averages, up-trending moving averages. That's another sign of strength. If you have a moving average that's moving down, then it will be harder for the stock to go up. So if you're trying to pick stocks, you want to pick stocks that are up-trending, up-trending moving averages, and have the momentum behind it. Let's take a look at something like Kellogg, for example. You can see this is a daily chart of Kellogg. You can see the stock chart moving down. You got the 50-day and 20-day moving averages are moving downwards or sloping downwards. That is a sign of weakness. Just because Kellogg is making lows here, that's not an indicator that you should buy now because just because it's a cheap price doesn't mean you should buy. The momentum is not on Kellogg's side. The momentum is to the downside. So trying to get long here, you're trying to pick a bottom and you're going to be fighting an uphill battle. So you want to stick to the stocks that are moving upwards, upward-sloping moving average lines as well. So we looked at Apple. Now, we'd like to look at AMD because I'm a big fan of AMD. AMD, we always look at their chart, had the W pattern briefly moved above and has come back down again. Now, AMD finished below the 50-day moving average yesterday, Friday, January 15, 2021. So what do we do? Well, now we stick around and wait and see what happens. We need to see where it's going to land. Will it move down to the lower end of this channel? Will it move down to the 200-day moving average? Or will it kind of catch its breath and move back up? So for me, I'm not looking to get into a bullish or neutral trade yet on AMD. I love the stock. But to me, it's telling me, okay, there's something going on here. It's pulling back. I need to wait to see if it starts to move back up again. If not, I'll wait to see where it moves down to and then wait for it to move up again before I possibly get into a bullish trade. So learning how to read these stock charts is a great skill to have. Let's take a look at some other charts. Amazon, we had already pulled up. Amazon still kind of meandering in this triangle. I may have to widen out the triangle again. So what you can do is, if I remove this line and I can draw a new line, let me move myself here, I can draw a new line connecting the tops of these moves. That will help me get a better view of the triangle. So here we go. We can draw a new triangle and that'll put Amazon in the new congestion pattern and just wait to see what happens. It looks like it's kind of bouncing off this upward trending line here. So Amazon still kind of just meandering. Let's take a look at Tesla real quick because that's a favorite. Tesla looked at it last week, had blasted higher. Here's the whole week's worth of trading right here this past week. Could be a little bit of a triangle pattern right here, congestion pattern, but it moved down yesterday, closed on the low, near the low. So we have to wait to see where Tesla goes. If you've been wanting to get in on Tesla on the long side and you've got the FOMO, the fear of missing out, your best bet would be to wait for a pullback to the 20-day or 50-day if it ever gets there. That's going to be your call. So Tesla's been a great winner for a lot of people. What else? Walmart is something we'd like to take a look at. Walmart's been kind of meandering. Still has a nice upwards movement, but has now fallen below both the 20-day and 50-day. So you want to see what happens on Walmart. What else do we have? Microsoft is another one that we always look at, still kind of in the channel here. So you want to look at the patterns. You want to see the patterns. And what else? Netflix, same thing, kind of still meandering in a pattern. Not much happening there. Now if you're selling options, selling put spreads or selling single put options, meandering markets are great, but you have to be careful on these expensive stocks because if it breaks down below, you're going to be in a world of hurt. So if you're going to do trades on these expensive stocks, stick to selling the put option credit spreads like we talked about Nike, another one stock I like has been hugging the 20-day moving average, finished this week below the 20-day. So look for the 50-day for the next line of support or it could just continue to bounce. So keep an eye on those things. So those are things that you should look for when you're researching stocks. So once again, let's take a look at the broad market, see what's going to happen for next week possibly. I still like the market, still looking strong, hugging the 20-day moving average. Let's see if the market can continue to bounce moving forward. In the US, Joe Biden will be taking over as president in the middle of the week next week. So let's see if that's a good thing. The market may like that. All right, that's all for me today. Let's quickly go over, let's quickly go over before I shut off here. Once again, let's take a look at our website, smartoptionseller.com, and see what we can do here. Once again, selling put options, put selling basis, go to our website, smartoptionseller.com, click on the put selling basics link right here. You'll get a free copy of how to sell put options, put your name and email address, and I will mail that to you. Once again, our services right here are two newsletters. One we talked about today, Vertical Spread Trader. That's selling put option credit spreads, smartoptionseller newsletter. That's what we do. We sell individual put options, one-on-one coaching if you need help, want to learn, take your game to the next level. We have our one-on-one coaching. Okay, that's all for me today. These videos are getting longer than I like, but I hope I've given you some great content. Don't forget to subscribe to this YouTube channel. In the bottom right corner of this video is the red subscribe button. Click on that, and you'll always be able to see these videos. Also, give me a thumbs up if you liked the video. Give me a comment. Tell me what you're thinking. Send me questions. I will always answer. Okay, that's all for me today. Lee Lowell signing off. Hope everyone has a great weekend.